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2021 (4) TMI 93 - HC - Income TaxTDS u/s 195 - commission paid outside India - disallowance made u/s 40(a)(i) - Tribunal setting aside the disallowance made u/s 40(a)(i) by holding that the income of the non-residents by way of commission cannot be considered as accrued or arisen or deemed to accrue or arise in India as the services of such agents were rendered or utilized outside India and the commission was also paid outside India - HELD THAT - In case of GE India Technology Pvt. Ltd. 2010 (9) TMI 7 - SUPREME COURT as dealing with remittance of royalty of purchase prices of subsidiary delivered by the foreign party. It was held that if the payment is made by the resident to the non-resident was an amount which was not chargeable to tax in India, then no tax is deductible at Source even though the assessee had not made an application under Section 195(2) of the Act. A reliance has also been placed upon the judgment delivered in the case of Exotic Fruits Pvt. Ltd. 2013 (10) TMI 826 - ITAT BANGALORE and the judgment delivered by the Income Tax Appellate Tribunal is in favour of the assessee. Keeping in view the totality of the circumstances of the case, this Court is of the considered opinion that in the present case the Associated Enterprises has rendered services out of India in the form of placing orders with the manufacturers who are already outside India. The commission was paid to Associate Enterprises out of India. No taxing event has taken place within the territories of India and therefore, the Tribunal was justified in allowing the appeal of the assessee.
Issues Involved:
1. Disallowance under Section 40(a)(1) of the Income Tax Act. 2. Applicability of TDS on commission payments to non-residents. 3. Determination of income accrued or arisen in India for non-residents. Detailed Analysis: 1. Disallowance under Section 40(a)(1) of the Income Tax Act: The appeal arose from the order by the Income Tax Appellate Tribunal (ITAT) which granted relief to the assessee by setting aside the disallowance made under Section 40(a)(1) of the Income Tax Act. The ITAT followed its earlier decision in M/s. Exotic Fruits Pvt. Ltd. Vs. ITO, holding that the income of non-residents by way of commission cannot be considered as accrued or arisen in India since the services were rendered and the commission was paid outside India. The revenue contended that the ITAT erred in law and facts by not considering the specific provisions of Section 5(2)(b) read with Section 9(1)(i) of the Act. 2. Applicability of TDS on commission payments to non-residents: The revenue argued that the ITAT wrongly held that TDS was not deductible from commission payments to foreign agents. It was contended that the assessee failed to deduct TDS, making the expenses inadmissible under Section 40(a)(i) of the Act. The revenue relied on the Supreme Court judgment in GVK Industries Ltd. Vs. Income Tax Officer, which emphasized that income by way of commission to non-residents should be considered as accrued in India if the services were utilized in India. 3. Determination of income accrued or arisen in India for non-residents: The core issue was whether the commission income of non-residents could be deemed to accrue or arise in India. The ITAT found that the services by Associated Enterprises (AE) were rendered outside India, and the commission was remitted abroad. Therefore, the commission income did not accrue in India. The High Court upheld this view, distinguishing the facts from the GVK Industries case, where the services were utilized in India. The Court referred to the Supreme Court judgment in Toshoku Ltd., which held that if no business operations are carried out in India, the income cannot be deemed to accrue in India. Judgment Summary: The High Court dismissed the revenue's appeal, holding that the ITAT was justified in setting aside the disallowance under Section 40(a)(1). The Court concluded that the commission income of non-residents did not accrue or arise in India as the services were rendered and the commission was paid outside India. The substantial question of law was answered in favor of the assessee, affirming that no TDS was required on commission payments to non-residents under the given circumstances.
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